Ashok Vaswani, the CEO of Barclays UK talks to Katina Hristova about championing digital skills for all and his outlook for the future.

Barclays has a history of innovation and continues to be a leader when it comes to technological innovation in banking services – tell us more about it.

 Barclays has been at the centre of British finance for over 327 years, and in that time, the world has changed beyond recognition. However, the reason we have been able to consistently deliver game-changing innovations throughout all this disruption has been a relentless focus on our customers, their needs and aspirations, and being there for the moments that really matter.

We have 24 million customers in the UK; roughly one in two adults. For me, success isn’t about driving the business to get 25 million customers – it’s about becoming indispensable for the 24 million customers we already have, by continuously making their lives easier, offering greater convenience and delivering value for them.

If we can’t do that, we won’t be around for another 327 years, or even 10 years. In this era of disruption, businesses will become obsolete unless they serve a clear purpose. Our purpose is to help people go forward.

What have been Barclays’ biggest achievements in the past 12 months?

We have been at the forefront of reinventing banking through a focus on great technological innovation with a purpose. I think our biggest achievements have been transforming the business and its culture as well as creating Barclays UK; a business that is truly fit to meet customers' needs and expectations in the digital age.

As part of that, we have rolled out a number of technology solutions to make our customers’ lives much easier, such as instant cheque imaging and video banking. Barclays was also the first bank to introduce contactless cash; a completely new way for customers to withdraw their cash using their Android smartphone or their debit card’s contactless technology.

We have also launched automated valuations for home purchases, shaving days off the processing time. Mortgage Agreement in Principle has also been introduced into 338 branches, allowing customers to obtain a mortgage decision in less than 15 minutes.

New digital processes have also helped improve the on-boarding of Business customers, and the introduction of pre-approved credit limits for Business customers has reduced the time required for customers to request an unsecured loan of less than £25,000 from five days to a matter of minutes.

In addition, we have opened 12 Eagle Labs, sites where people can use new technologies such as 3D printers and laser-cutters and which help facilitate small business growth in local communities.

We have also demonstrated a strong commitment to using technology to enhance customer security; Barclays was the first bank to pioneer finger-vein technology in the UK, and we are working to tackle fraud through innovations like voice biometrics, which over 750,000 customers have now registered for.

How would you evaluate the impact that you’ve had on Barclays achieving all of this?

In creating Barclays UK, I have set out three mains goals for the business:

• Continually demonstrating how we are putting customers first by providing value and making their lives easier.
• Demonstrating our commitment to supporting the UK economy.
• Fundamentally rebuilding trust in Barclays and reinstate pride in our profession by putting customers at the heart of everything we do.

Barclays UK has already made significant progress in achieving these strategic aims, and we have done this by putting the customer at the heart of everything we do.

Our investment in technology sets us apart, putting us at the forefront of innovation in the banking sector, delivering products and services that improve people’s experience, enhance accessibility and offer quicker and more convenient choices for customers.

At the same time, we have been working to make sure that no one is left behind in the digital revolution.

Our Digital Eagles have so far helped to support over 100,000 customers to become more digitally confident through dedicated Tea and Teach Sessions in our local branches, as well as delivering Code Playground sessions to teach young people basic coding skills.

We’ve also introduced the Digital Driving License, a free app through which users can earn a City & Guilds digital skills qualification, boosting their digital skills and confidence.

In 2017, Barclays UK launched its latest campaign to promote digital safety, a major nationwide initiative to raise awareness of cybercrime and help people protect themselves from fraud and scams.  Since the campaign launched in May, it has already helped 2.5m people take action to become more digitally safe.

We have also pioneered Beacon Technology, improving the level of in-branch service offered to customers with disabilities, as well as SignVideo, which allows deaf people who use British Sign Language instant access to an interpreter via the in-branch colleague iPads. Talking ATMs, supersize card readers and high-visibility debit cards have also been launched for the visually impaired.

In addition to championing accessibility, we want to ensure we are doing the right thing by society as a whole. As part of our commitment to helping people move forward in their lives, we run a number of skills and employability programmes, for example, the Barclays apprenticeship scheme, through which over 3,000 apprentices have already been offered employment. I also support the Armed Forces Transition, Employment and Resettlement (AFTER) programme, which provides work placements, employment opportunities, CV and interview coaching, and money management sessions, as well as funding for education and vocational courses for service leavers.

We also have the LifeSkills Programme, which provides schools with a range of free, curriculum-linked lesson plans, workshops and resources designed to help 11-19 years olds to develop the skills employers most seek. To date, over 4.3m young people have been reached through the LifeSkills programme via either in-school lessons or directly online.

I believe we are beginning to rebuild the trust and reputation of the banking industry, but I know we still have some way to go. However, by remaining committed to the strategy of putting customers and clients first, serving our economy and earning trust, I want to build a solid foundation on which we can grow. Barclays is creating a bank that is truly good for customers and clients, good for businesses and good for Britain.

As CEO of Barclays UK, how do you ensure you are directing the company in the correct direction? How do you advise your team to make the correct decisions for the company alongside your customers?

The thing I ask myself every time I make a decision is: “are we doing the right thing for the customer?”. I learned a lot from my Mum growing up, and one of the principles that has always stuck with me is that there is no substitute for integrity. Integrity isn’t just about what you write down as your mission statement, it’s also about how people behave when no-one is looking.

When it comes to my team, another thing that my Mum taught me is the importance of humility, that is to be ready to admit I don’t have all the answers, which is why I need many brilliant minds working to deliver our game-changing innovations.

I sincerely believe everyone needs to keep learning throughout their career. We can no longer rely on what we learnt at school to last a lifetime. I encourage everyone at Barclays to keep learning, particularly digital skills, and to develop an entrepreneurial mind-set.

What was your main motivation behind being the CEO of Barclays UK and what is the most rewarding aspect of your role?

The most rewarding thing about the role is the opportunity to work for millions of people.

In terms of how I got here, as a kid in Mumbai, my Mum wanted me to be a Doctor. When I said I didn’t want to do that, she actually took me to see my local bank manager to ask what he thought a good job would be.

I’ve since come to realise that the role of a bank manager is really at the centre of a community, and I have him to thank for the fact I became a Chartered Accountant. After that, I moved to Dubai aged 27 with $10 in my pocket, and met my wife there. That was the start of a fascinating journey working around the world.

What are your plans for the company for the rest of 2017 and beyond?

There are some exciting times ahead, with next year’s PSD2 and data protection regulation set to transform the shape of the digital economy. Barclays has all of the right ingredients to remain a leader in financial services, but we must be prepared and remain agile in order to take full advantage of the coming changes.

In the longer term, customer expectations are no longer confined to one industry – we are being judged not against other banks, but against the best in class from across our customers’ favourite brands. Is Barclays a bank, an information business or a technology company? We’re all three. But we will never lose that central focus on the customer, and that’s how we will thrive in a truly connected world.

Despite its significant economic growth and vast oil riches, Nigeria has struggled to fight poverty in the past three decades. Finance Monthly had the privilege to speak to Godwin Ehigiamusoe, a man who’s devoted his career to helping the poor and the vulnerable people of Nigeria.

LAPO (Lift Above Poverty Organization) is a non-profit community development organization committed to the social, health and economic empowerment of the poor and vulnerable. Please tell us about the company’s beginnings.

Lift Above Poverty Organization (LAPO) was initiated to address the challenges that the poor and the vulnerable are facing. I established the company in Ogwashi-Uku, Delta State in late 1980s in response to the increasing level of poverty arising from the implementation of the central components of the Structural Adjustment Programme (SAP). These components of SAP were the first devaluation of the national currency - the Naira; and rationalization of workforce in the public sector. The impact of programme implementation on poverty was enormous. For example, the number of Nigerians living below the poverty line rose from 18 million in 1980 to 67 million in 1996[1].

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In mid-2010, we established LAPO Microfinance Bank- a premium Microfinance Bank. LAPO has also capitalized LAPO Microfinance Company in Sierra-Leone. The bank’s superior performance has been powered by flexible institutional structures and processes which effectively engage members of low-income households; owners of micro and small enterprises.

What are LAPO Microfinance Bank’s key priorities towards its clients? How has this evolved over the years?

LAPO Microfinance Bank prioritizes access to a range of responsive financial services particularly, micro loans. It has also committed enormous investments in client support activities and clean energy lending. LAPO Microfinance Bank provides basic micro-business management services to clients who are owners of micro and small scale enterprise. It facilitates access to insurance policies for poor clients. Its credit plus approach to service delivery is informed by the fact that low income people, particularly women contend with challenges beside lack of access to finance. Over the years, LAPO has expanded its loan portfolio from few products to a basket of responsive products. They range from farming to affordable housing and education loans.

How have the LAPO Microfinance Bank’s service offerings evolved?

Like most microfinance institutions, LAPO at inception started with mono-product which was a working capital loan for micro and small businesses. In its 5-year plan (2013-2017), LAPO Microfinance Bank prioritised product diversification. As a result, a number of credit and deposit products have been developed and offered to meet the varied financial needs of low-income people, micro and small businesses. LAPO Microfinance Bank is currently deploying alternative financial delivery channels to expand its outreach.

As CEO, how do you advise your team to make the correct decisions for the company alongside clients?

I emphasize client engagement which consists of regular interaction and assessment of their current and emerging needs. Other steps include efficient service delivery and effective performance management. I also prioritize innovations with the creation of Innovation Lab. Staff members are empowered with various training and capacity development programmes. They are encouraged and indeed involved in goal setting and a periodic performance review.

What are your plans for the company for the rest of 2017 and beyond?

LAPO Microfinance Bank shall seek to extend its range of services to actors in the rural economy. This is understandable; Microfinance should be made relevant to agriculture in Africa, given the fact that a large number of Africans engage in agriculture and allied activities. A range of products will be offered to meet the financial needs of the various segments in the agriculture value chain. We plan to deepen our cleaning energy lending in the coming years.

Your job must be very rewarding. Is this the motivation that drives you?

 Indeed – the past three decades of engagement with poverty lending have been full of excitement. There is certainly a sense of fulfillment.

I am driven largely by the desire to address the scourge of poverty. This informed my decision to set up the organization in the first place, and has continued to propel my desire to scale up to reach a large number of low-income people and offer them a range of empowering products and services.

Website: http://www.lapo-nigeria.org/

[1] In Poverty and Microfinance in Nigeria (2000) by Godwin Ehigiamusoe

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Banks are failing holidaymakers, expats and internationally-mobile individuals reveals a new survey from deVere Vault.

In a poll carried out by deVere E-Money’s global e-money app, 91% of 856 respondents said that the fees for using their debit card overseas were “unacceptably high”.

Nigel Green, deVere Group’s founder and CEO, comments: “As schools break-up for summer, millions of families are looking forward to some quality time together overseas. What they will not be looking forward to are the charges their banks slap on them every time they use their debit cards overseas for purchases or withdrawing cash.

“Nine out of 10 people told us that they found the fees for using their cards overseas were ‘unacceptably high.’ You can see why: 6% for accessing your own money when outside your country of origin is a scandal.

“In today’s increasingly globalised, connected world, you should be able to access, manage and use your money free of charges, wherever you are in the world.”

“Traditional banks are failing holidaymakers, expats and internationally-mobile individuals in this regard.”

He continues: “The banking sector is dragging its feet. It is looking increasingly archaic due to its failure to adapt to an ever-more mobile population who want, need and expect free, borderless financial solutions.

“The telecommunications industry have recognised this far-reaching, fundamental shift by reducing or scrapping their roaming charges in many countries.  However, the arrogance of traditional banks is such that they believe that they don’t have to change with the times and meet evolving client expectations so are continuing to impose ridiculously high charges for using your bank card abroad.

“As an expat myself and as someone who travels internationally a lot for my work, I am speaking from experience.  This is why we decided to challenge this outdated banking mindset with deVere Vault.”

At the launch of the global e-money app, Mr Green said: “deVere Vault will provide global services in electronic money and a single card, multi-currency service.  Focusing on those with an international lifestyle, we will also ensure that the best currency exchange ratios are given.

“You will be able to open a deVere Vault account in around five minutes, withdraw money from any cash machine worldwide, get real-time notifications with all your transactions, spend money on the card wherever Mastercard is accepted, and send and receive money in most major currencies instantly with other deVere Vault account holders.”

The deVere CEO concludes: “People no longer need to tolerate the banks’ high charges for accessing their own money when overseas.

“Today’s world is a global one.  Our society is increasingly internationally-mobile and people should not be hit with unnecessary charges for choosing to live, work, retire or travel outside their country of origin.  Access to banking needs to be borderless in the 21st century.”

(Source: deVere Group)

The world of banking, perhaps more than any other industry, has undergone significant change in recent years. As technology, strategies and partnerships progress, we’re beginning to see new avenues of growth such as gamification, which according to Karen Wheeler, Vice President and Country Manager UK at Affinion, may hold the key to enhanced customer engagement for the banking sector.

The digital revolution has transformed the way people interact with their banks, within-branch visits falling  as the rise of mobile banking has led to customers being able to manage their finances whenever, and wherever they are. And this trend is set to continue, with new figures from CACI revealing that mobile transactions are set to rise by around 121% between 2017-2022, and the average branch visits dropping from seven to four by 2022.

Traditional providers have also been faced with the uprising of challenger banks, which are striving to capture the attention of millennials with their agile, digital offerings. The territory of the high street stalwarts is being encroached on by the likes of PayPal and ApplePay which have disrupted the payments market, traditionally an area which banks dominated.

To stay relevant and encourage loyalty in an increasingly competitive industry, banks know they need find new ways to engage with their customer base. With today’s consumers never far from their smartphones, and moving fluidly between digital platforms, could gamification be the answer in the quest for greater engagement?

Gamification explained

Gamification originates from the computer games industry, and aims to engage with the principles of basic human psychology. In particular, it involves an understanding of what motivates people, how we want to be rewarded – and what will make us play again. Or, for banks: stay loyal.  At its core, gamification has a human centred design; optimised for feelings, motivation, insecurities and engagement.

Some of the aims of gamification include: driving a level of competition within users that results in increased usage and engagement; tapping into the human need for esteem and self-actualisation to increase the levels of motivation; playing on the human desire for power in an attempt to drive users to log back in and increase their status; and evoking similar reactions to those elicited by gaming by releasing chemicals which invoke feelings of excitement, euphoria and pleasure.

So, what does this mean in practice; how can gamification be used within the customer experience?

Bringing gamification to life

There are normally a number of different mechanics used in gamification which include points (normally the main method of currency in a gamified system, as they play on the human urge to collect resources), and rewards, when a user earns points which can be translated into a ‘currency’ for exchange of goods and services (whether real or virtual), and gives the user something to work towards.

Building on the idea that we are all naturally seeking power and status, badges are also used to symbolise accomplishments and play on the human desire to show competence, and leaderboards are used to recognise achievements and promote friendly competition between users.

In recent years, gamification has evolved from its traditional rewards-based platform, to one fuelled by sophisticated data-driven capabilities which allows businesses to offer personalised, user-centric experiences. This is no surprise when you consider the way we now live our lives; the proliferation of devices, apps and social media channels means our expectations of the digital customer experience are high.

How can banks use gamification in the customer experience?

Gamification is actually not a new concept in banking; it has always been part of their  set-up and is now growing, driven by customer behaviour and digital capabilities. Back in 2011, Gartner predicted by 2015, more than 50 percent of organisations that manage innovation processes will gamify those processes. With this date now far behind us, how accurate was this prediction?

Back in 2013, Spanish bank BBVA led the way with incorporating gamification into the experience it offered customers. The provider analysed how its customers interacted, and found that many felt more secure in going to the branch to complete their transactions. BBVA Game was launched to encourage customers to use its digital platform; with the ultimate aim to improve their customer retention and online customer experience.

The game allows people to make account enquiries, pay bills and carry out different kinds of transactions. Where the gamification element comes in to the mix is that, with each completed transaction, the users will earn points. There are also challenges and missions for users to undertake, with medals and badges being rewarded – which can then be shared to social media.

What can traditional banks learn from challengers?

BBVA has also invested in the development of Atom, the digital bank leading the charge for challengers. In a clear sign that Atom wants to its customers something different, it acquired software company Grasp, which specialises in games and virtual reality development, to build its digital platforms. Atom claims to “celebrate your individuality in every way”, by allowing its customers to choose a logo, name and colours to personalise the app experience.

By allowing customers to adapt the interface to suit their preferences, Atom is tapping into the psychology of taking control by allowing customers to make their banking experience truly unique. European bank OTP banka Hrvatska has also recently announced impressive results from its new gamification platform, with 16.1% more clients signed up for mobile banking services and the number of clients using prepaid Mastercard increasing by 12.8%.

The future of gamification

Banks have to work hard to keep customers loyal, so changing the perception of banking away from a boring necessity to something more engaging is essential if they want to maintain their relevance and value in people’s lives. Gamification should be seen as a route to engagement; a part of the customer journey, not something separate.

Gaming creates positive emotion, drives social relationships and fosters feelings of accomplishment, by combining banking with fun, personalised and reward-based games.. This shift away from ‘banking as a service’ to ‘banking as an experience’ gels with the gamification model, and is one we can expect to see financial providers – both new and old – capitalise on as the digital revolution marches on.

In the digital economy, trust is the new currency. Technology is changing the nature of trust – especially for banking and financial services as they strive to provide greater value and protection to customers, and deliver products to market quickly through machine learning, blockchain and pervasive encryption. Explore the rise of "digital trust” and its impact on business in an interview with global trust expert Rachel Botsman and IBM Industry Platform General Manager, Strategy & Market Development Shanker Ramamurthy. Rachel’s “digital trust” theory was named by TIME as one of the “10 Ideas That Will Change the World.”

Kicking off July’s Game Changers section is an interview with David Taylor, the Founder, President and CEO of VersaBank. Here he tells us all about the exciting journey that building Canada’s first virtual, branchless bank has been thus far.

You founded VersaBank in 1993 – could you tell us a bit about this 24-year journey and what it has taught you?

 It certainly has been an exciting journey, filled with challenges and lessons. I thought that by applying emerging digital technology to banking, I could create a bank without branches with low overheads that could economically serve small niche markets that were not well-served by Canada’s large full-service banks. Considering this ‘branchless model’ didn’t exist at the time, I expected that I would have to educate regulators, the banking industry, customers and partners about how it would work and what the benefits would be.

I think the most discouraging lesson I learned was that banking regulators like the status quo and do not welcome new ideas, even if it means that some Canadians in niche markets would continue to suffer with only limited access to economical banking.

On converse, I think one of the most encouraging lessons I learned was that some large Canadian full-service banks recognized the important role that VersaBank could play in serving niche markets, which are perhaps too small or obscure for them, and have aided VersaBank in fulfilling its mission to serve these markets.

Developing and improving the software and systems to deliver ideally suited products to our niche markets is always an ongoing challenge, but as Terence Mann said in ‘Field of Dreams’, “If you build it he will come”. I found to my great satisfaction that if you truly endeavor to deliver ideally suited products, you will never have to look for customers. They will ‘come’.

Our niche markets are diverse and include: financing hospitals and schools in the remote Canadian arctic, developing customized web-based banking packages for the insolvency industry, providing back-end funding for the Fintech industry and point-of-sale financiers so that people can lease their hot water heaters, have cosmetic surgery, or lease equipment for their retail or business operations.

In many respects, we are the original FinTech, continuing to leverage the power of new technologies to reach our customers and serve their needs, but unlike the FinTechs of today, we’re also a Schedule 1 chartered bank with access to a huge source of funds, through an expansive network of more than 120 financial advisory and brokerage firms who deliver deposits to us digitally.

Finally, we have proven that you don’t need lax credit standards to attract borrowers. Convenient access, reasonably pricing and flexible terms will attract good quality borrowers. VersaBank has had no need for a collections department and has established one of the lowest loan loss histories in the industry. My hope was that by applying new technologies to banking, we could really make a difference to our customers’ lives. I think we have been able to do this and I look forward to continuing to grow our bank and to finding more innovative ways to serve my fellow Canadians.

Could you tell us a bit about your background prior to founding VersaBank?

 I was fortunate to be provided with a solid foundation in banking by working at two leading, but very different, banks. I started my banking career at a large full service Canadian bank, the Bank of Montreal, where I discovered a passion for the business. It was a terrific opportunity to learn the basics of banking and I spent eight years there, before moving to Barclays Bank of Canada. In Canada Barclays PLC employed a niche strategy. However, when, amidst a downturn Barclays decided that the country was a non-strategic market, I saw an opportunity to create a Canadian niche bank, which ultimately led to the formation of VersaBank.

What have been your biggest achievements to date?

 A couple of things immediately come to mind, which are at opposite ends of the VersaBank journey. They being: getting the digital bank started back in 1993 and successfully completing a very complex amalgamation transaction earlier this year. Both of these achievements were ‘firsts’.

I soon discovered that the banking regulators had no appetite to grant a bank license for a brand new bank with an untested model. So I decided to acquire an existing financial institution and transform it into my new model. I looked for the smallest financial institution I could find and discovered Pacific & Western Trust in Saskatoon, Saskatchewan. I met with the owner - Bill MacNeill at a restaurant and sketched out a plan on how I could transform Pacific & Western Trust on a napkin. When he asked if I was there to buy his trust company, I surprised him by suggesting instead that he ‘buys’ me to run and transform his trust company. I had extensive experience in the industry and was a banker and he was, in fact, a miner. He agreed to my suggestion and that opened the door for me to build Canada’s first virtual, branchless bank.

I also believe that the completion of our amalgamation in January 2017 was a key accomplishment. It was the first successful merger under the Canadian Bank Act and enabled us to significantly simplify the structure of the bank, while also realizing some significant financial benefits. It was a very complex transaction that required approvals from the shareholders of VersaBank, PWC Capital, the regulators and even the Canadian Minister of Finance. We secured an overwhelming approval from shareholders of the two companies and the other required approvals. It was a great accomplishment and was vitally important to the positioning of VersaBank for the future. We’ve created a unique state-of-the-art bank that is profitably providing banking services in niche markets throughout Canada.

Could you please tell us a bit more about the merger with PWC Capital and what it means for the future of VersaBank?

 This transaction was historic in the sense that it was the first merger to be successfully completed by a Schedule 1 bank (a domestic bank that accepts deposits) under the Canadian Bank Act. Previous attempts by other banks had been unsuccessful.

While that’s a fun fact, the merger for us was critical to our future success, as it ultimately was about creating a simplified structure for VersaBank and eliminating confusion that existed with its parent company, PWC Capital. Previously, there had been two publicly traded companies, VersaBank and its parent a financial holding company, PWC Capital. This created duplication and PWC Capital had been highly leveraged. In addition, potential investors often were confused about the differences between PWC Capital and the banking entity, Pacific & Western Bank of Canada (now VersaBank). This structure was inefficient and it impeded our ability to grow. We needed to change it.

What emerged out of this complex transaction is a growing, standalone, publicly traded, high-margin, branchless chartered bank that uses its software to reach key niche markets, traditionally underserved by the big Canadian banks. We have enormous growth potential.

You’ve also recently opened a new digital facility, which provides the infrastructure for VersaBank’s branchless model and complements Canada’s FinTech industry – how did the idea about the platform come about? What is your outlook for its future?

 Right from the founding of VersaBank, we believed that we would have a significant competitive advantage by designing, developing and maintaining state-of-the-art, custom banking software that helps to address customers’ specific and unique needs, while also minimizing the required investment in physical infrastructure and human resources. We’ve tended to focus on niche markets that are traditionally underserved by Canada’s big banks.

By following this approach, for example, we’ve become the bank of choice for Canada’s national consumer insolvency firms, by creating a banking package ideally tailored specifically to the unique needs of insolvency professionals. It’s highly efficient and very economical both for us and for our clients and has become a win-win for ourselves and our customers.

We recognized that there could be tremendous synergies if we brought some of our in-house teams under one roof, which has led to the establishment of our new digital facility, the VersaBank Innovation Centre of Excellence – the modern, new home of our in-house software development division and its eCommerce division. By bringing them together, we have enabled these teams to work side-by-side to encourage collaboration to improve our existing banking solutions and create new solutions for tomorrow.

The team already is working on some innovative new solutions that likely will hit the market in the next couple of years.

Is there anything else you would like to add?

Arguably, when first conceived, VersaBank was a little ahead of the times, but the times have now caught up and VersaBank is finally able to take full advantage of its systems and model to serve people across Canada without branches. Its products are in high demand and its margins lead the industry without the usual loan losses. Twenty years ago this would have been a dream, but today, the dream has become a reality.

Website: http://www.versabank.com/

Trish Devine, a managing director in Corporate Banking, help clients realize their objectives by leveraging different parts of the firm.

In the eyes of multinational financial institutions, fintech innovators have moved from game-changing competitors to crucial allies. Ben Butler, Corporate Partner at national law firm Bond Dickinson gives Finance Monthly a rundown of the current progress between financial services, banks and fintech start-ups.

Customer demands and developments in technology have forced banks to think and act in a new way. In an industry in flux, the benefits for small and large companies of collaboration and building on each other’s strengths are clear.

The difference between well-established financial organisations and their start-up counterparts in many ways couldn’t be starker. The former can struggle to be agile, weighed down by processes and legacy – but they are often bolstered by their size, brand recognition and access to finance. All of which is in much shorter supply for small fintech companies: designed to be nimble, with digital talent at their core, they are at the same time constrained by their youthfulness in the market.

In a period of change and disruption, fintech startups are now key players in the digital transformation strategies of the established giants – and the most innovative amongst them can prove to be valuable partners.

Our new economic study Close Encounters: The power of collaborative innovation found that large financial companies took part in 1,864 such deals with UK SMEs in the last four financial years. £31bn is known to have been invested in these deals between the 2013/14 and 2016/17 tax years. The financial services industry is far ahead of any other sector in the UK.

But what are the five key areas organisations should consider and discuss frankly when entering into such deals?

1. Motivation 

Beyond the fair arrangement on the financial settlement, it is important to think practically about how differing motivations might play out as the relationship develops. Is one side looking for a quick result, with the other more focused on the long-term benefits of the partnership? Or could it be a defensive move on the part of the larger player in an attempt to remove the product from the hands of competitors – in which case the future may not look so exciting for the SME?

The nature of such deals means that the players in the small organisation will inevitably be focused on making the most from their distinct offering, while the corporate will instead have an eye on delivering against the investment. The most successful alliances nevertheless bring two organisations together that are aiming for a shared outcome, and motivated by the desire for continued innovation.

2. Culture 

Corporates often struggle to marry the objective of maintaining process-driven behaviours while still encouraging innovative thinking. Working together with a more agile SME might create a greater strain on this, and both parties need to carefully consider what this balance will look like in the new partnership.

The smaller partner will also need to be sure they can cope with the tighter controls that might be demanded of them, and the stricter processes that will likely come from working within a more established structure. Founders are often key for deals, but they should know what their exit route options are, should they find themselves in a less dynamic and rewarding environment.

3. Brand 

In the wake of the financial crisis, maintaining trust is front and centre of mind for organisations when looking to maintain a positive brand. So it is perhaps unsurprising that one of the biggest concerns arising from such deals is the reputational threats they may bring with them. Both parties need to be upfront from the beginning about a potential need for conformity and a possible loss of independence for the SME as a result.

Attitude to risk can also differ greatly for start-ups, and this can sometimes be incompatible with the compliance restrictions faced by large organisations. Understanding these challenges, some small organisations choose to go through regulation in advance of approaching the banks.

4. Tax 

At times, objectives can conflict when it comes to optimising tax: the corporate may qualify for Research and Development tax relief from the deal, while the SME shareholders may each be entitled to Entrepreneurs' Relief. In these circumstances, it can be in the interests of the corporate to secure more equity; yet those in the SME may want to hold on to a large enough stake so that they are eligible as individuals for the other scheme. This can be extra challenging when there are lots of shareholders, as the equity has to be spread more thinly.

5. Exit

Our research highlighted the popularity of minority stake purchases, which accounted for 75% of deals in the industry – three times as many mergers and acquisitions (25%). This may reflect the challenges that can arise from M&As which involve fully integrating systems and processes. Or it may be a sign that financial services firms are becoming savvy to the short-term exit strategies that seem to be ‘of the moment’, and that they are looking for something new – such as the recent trend towards selling rather than listing.

For corporates looking to purchase future value as well as intellectual property, a full acquisition is a less attractive option as a long-term innovation strategy.

However, minority stake purchases won’t always be a suitable answer for the smaller party. To get around such opposing interests, entrepreneurs might want to ensure the earn out is structured around the long-term prospects of the organisation and the future leadership, or perhaps around innovation goals rather than revenue generation.

Worldpay, the UK’s largest electronic payment processing group, has announced that it is to merge with US-based firm Vantiv, following takeover approaches from two American companies.

A preliminary agreement has been reached for Worldpay to combine with its US rival Vantiv valuing the British group at £9.1 billion. The deal also sees two executives take the run for the group, between themselves based in London and Cincinnati.

This comes after news that Worldpay’s takeover request was approached by both Vantiv and JPMorgan Chase, the world’s largest bank by market value. According to the FT, shares in Worldpay have soared in the days following the announcement of the deal.

Below Hayley Bevis, Partner and Head of Corporate at law firm Coffin Mew, gives Finance Monthly her response to this story:

“It is no surprise that Worldpay has received takeover approaches from two US companies and is now to merge with Vantiv. In our experience, the size of cross-border transactions over the last year has increased dramatically, as has the appetite of overseas acquirers and investors since the result of the Brexit vote. From our discussions with overseas acquirers and investors, the interest in the UK’s fast-growth companies has been triggered by a number of factors including the favourable exchange rate, but also as a way of quickly expanding an overseas acquirer’s capabilities, experience, customer base and technological advances. 

“We have seen a particular interest in the technology sector from overseas parties, with a UK based acquisition/investment often forming part of a larger “buy and build” strategy.

“In the case of Worldpay, tax and local law considerations will need to be taken into account by potential acquirers, as well as the often harder to define practicalities of how things are done locally in the acquirer/investor’s jurisdiction. 

“We don’t foresee this trend abating any time soon, so UK companies should brace themselves for a flurry of unsolicited interest – and not be surprised when approaches come predominantly from overseas.”

For Finance Monthly, Nic Beishon, Head of Commercial at Equifax, the consumer and business insights expert, below comments on the new Standards of Lending Practice for small businesses, which came into effect last week, 1^st July 2017.

As major contributors to the ongoing success of the UK economy, SMEs will benefit from the new Standards of Lending Practice. The standards will drive good practice for lenders when assessing different types of business, protecting those borrowing money and delivering fair customer outcomes. Evaluating a borrower’s capacity to meet their ongoing repayments is increasingly important to safeguard them against over indebtedness, and to identify businesses at risk of falling into financial distress.

The standards now apply not just to the very smallest business, but to any business with a turnover of up to £6.5 million. In order to meet their responsibilities to both clients and regulators, lenders need a 360-degree view of the applicant to understand their financial health. They should not just look at the businesses financials, but also the individuals behind the business. In particular, lenders should consider information such as the business current account turnover data and the use of overdrafts to assess whether, for example, a loan is appropriate. This should be the case no matter the size of the SME, whether the person being dealt with is a sole trader or a director of a company.

This information is not just important at the time of application, it should also be assessed on an ongoing basis to identify any change in circumstances, and in the case of financial difficulty, the best way to assist the business owner.

The SME sector is vital to the UK’s continued economic recovery and the standards are designed to create fairer lending for these important businesses. Integrating a mix of commercial and consumer analysis into lending decisions will allow lenders to commit to responsible loans while helping the sector to grow.

There are just six months left until Open Banking phase two begins, when customers will be able to digitally access and securely share their bank transaction data to get the most from their finances.

The initiative will encourage financial service providers to offer high quality, targeted services and in turn boost competition.

Roger Vincent, Head of Banking and Innovation at Equifax, comments: “The banking industry is set for a huge customer-centric shake-up with the implementation of Open Banking phase two in January 2018. This exciting development will dramatically change the customer banking experience, helping consumers and businesses to use their financial transaction data to access products more easily and better understand their finances.

“The initiative kicked off earlier this year with stage one, where the ‘CMA9’ (nine banks mandated by the Competition and Markets Authority) provided improved access to information such as ATM locations and product listings. The second stage is the real game changer, with bank transaction data made available digitally for consumers and businesses to share securely, and only with their agreed consent, via open application program interfaces (APIs). Through the open APIs the data can be used by authorised third parties to build new high quality and targeted services, including new digital offerings, facilitating a more competitive environment.

“The ability for transaction data to be used for automated creditworthiness and affordability assessments, fraud detection and product accessibility is endless. Customers will be able to control how their financial data is shared digitally and provide a deeper picture of the way they manage their money. This could mean a quicker, more secure and fully digital mortgage application process or faster access to finance for a new business venture. For those currently underserved by the market, for example young people or the self-employed, it could mean the start of a journey to better financial health.

“Over the next six months, banks need to embrace the move towards a more transparent banking world. To do this successfully, preparations must focus on meeting the long-term practical benefits of consumer empowered data sharing rather than approaching this change as a tick-box compliance activity.”

(Source: Equifax)